Job woes and local content

The dearth of oil jobs in Ghana is back in the news again.

“Youth angry over elusive jobs in oil industry,” was the title of an article published in the Ghanaian press on March 12th.

The article cites Ebow Haizel-Ferguson from Sigma-Base Technical Services, who urges the rapid development of “ancillary industries.” I interviewed Haizel-Ferguson for “Ghana: Will oil mean jobs?” a short video I produced for the Pulitzer Center .

Oil brings in huge amounts of money, of course, and along with that comes expectations of many, well-paid jobs. The problem is that the industry – at least as it exists in Ghana now – doesn’t generate much work.

The work will come when Ghana develops the downstream sector as Haizel-Ferguson points out. When Ghana starts doing something with its oil, besides exporting it, then there will more employment. The oil services sector, which is growing as the offshore industry grows, will also really take off when and if Ghana builds refineries and petrochemical plants.

The long delayed gas project will generate jobs, but whether there will be enough work (and whether that work will materialize quickly enough) to counter the anger over the project’s relocation remains to be seen.

Ghana’s gas project with its multiple delays, bad communication on the ground in Bonyere and surprise relocation to Atuabo has certainly exacerbated the frustration in the Western Region. When the project construction begins in earnest, there will likely be intense scrutiny of the percentage of foreigners in the workforce – another potential source of community anger.

“Local content” is a hot issue in Ghana’s oil and gas industry at the moment.  The Ghana News Agency reported on March 14^th that, “The Ministry of Energy has developed a policy framework on Local Content and Local Participation in Petroleum related activities approved by Cabinet and awaiting legislation.”  According to the GNA report, Minister of Energy, Dr Joe Oteng Adjei, says the new policy will integrate Ghanaians into all aspects of the oil and gas industry:

“Indeed, it is our wish that within a decade, the country will be able to achieve at least 90 percent local content and local participation in the oil and gas industry”.

We’ll have to wait for details on how the government intends to increase local content and participation, which is easier said than done. Training, education, quotas, regulation, penalties, taxation, incentives – the government has multiple options for addressing the question. Someone ought to ask the Minister how local content objectives align with the terms of $3 billion Chinese loan agreement stipulating that at least 60% of goods and services be China-sourced:  Under clause three of the Master Facility Agreement, a minimum of 60 per cent of each tranche was required to be paid to the People’s Republic of China (PRC) contractors, a clause which allows about 40 percent of the facility to be applied towards local content sourcing, or sources other than the PRC.

In the meantime, I came across an interesting article on “local content” woes in Uganda, “Local SMEs warned on oil fortunes.” This piece focuses on the problems of local companies seeking to supply food (in this case, poultry) to the oil industry. It’s a good story because it reminds readers that local content goes far beyond jobs on the oil rigs. At the same time the article highlights the importance of training small and medium sized enterprises to be able to meet the demands of the oil industry:

An official of the Uganda Investment Authority told a story of a local poultry company that was contracted to supply 200 chicken a week to feed the growing population connected to the oil activities in the Lake Albert region.

The company delivered orders for two months, then stopped. It had run out of chicken.

“I was surprised to hear that it had failed to service the order consistently because it lacked chicken,” said the UIA official who participated in a recent study titled, Constraints and opportunities for SMEs investment in Uganda’s oil and gas sector,’ conducted by UIA and the ICBE Africa Trust Fund.

What the company should have done, according to Rebecca Nalumu Wamomo, the UIA officer who spearheaded the study, is merge with others to ensure adequate supply, instead of abandoning the order.

The study, conducted in January among 220 SMEs in Hoima, Masindi, Buliisa, Gulu and Kampala, found that their capacity to take advantage of the emerging opportunities in the oil industry –Uganda’s most lucrative sector for the foreseeable future – was curtailed by limited capital, assets, technical skills and information.

“It is very important for SMEs to merge to be able to meet the demand from oil companies,” Nalumu told The Independent. “The benefits of merging may not be obvious in the short run but can be seen in the long run.”

The study found that in the petroleum value chain, SMEs mainly provide indirect services such as catering, logistics, agricultural produce supply and unskilled casual labour – quite often unreliable as seen with the chicken supplier. Core activities like appraisals, surveys, exploration, drilling, and others, belong to government, trans-national corporations and large scale direct service providers, leading of which are international companies like Tullow, CNOOC and Total.

Due to low capacity, the international oil companies are less willing to formalise business with SMEs. Nalumu said of the 220 SMEs interviewed, only 10% had signed memoranda of understanding to supply services. Unfortunately, many of them also failed to meet the demand, which generally points to lack of or low capacity among local SMEs.   This has to be addressed urgently if the high expectations of reaping from the lucrative sector are to be realised  or if not completely lost to foreign companies.

Read the full article at the Independent.co.ug.

 

 

 

 

 

This entry was posted on Thursday, March 15th, 2012 at 4:01 pm.